Microeconomic Aims
What are the four main macroeconomic aims?
Low unemployment, price stability, economic growth, and balance of payments stability.
What type of fiscal policy involves cutting of spending?
Contractionary fiscal policy.
Why is low unemployment considered a macroeconomic aim?
High unemployment leads to wasted resources and lower national output.
What is inflation?
General increase in price level.
Which policy—fiscal or monetary—includes government spending changes?
Fiscal policy.
What does "price stability" aim to control?
nflation and deflation.
What is fiscal policy?
Government decisions about taxation and spending to influence the economy.
What are the effects of low interest rates?
More borrowing and spending, boosting economic activity in general.
What is disinflation?
A decrease in the speed of inflation.
What is a way a central bank can help stabilize prices if inflation is rising too fast?
Why is low unemployment considered a macroeconomic aim?
Because high unemployment leads to wasted resources and lower national output.
What type of fiscal policy is used to reduce inflation?
Contractionary fiscal policy (cut spending or raise taxes).
What is the central bank's role in monetary policy?
It sets interest rates and controls the money supply.
Why might people stop spending during deflation?
They expect prices to keep falling, so they wait to buy things.
What is the difference between a budget deficit and surplus?
Deficit = spending > revenue; surplus = revenue > spending.
What is the relationship between economic growth and living standards?
Economic growth usually leads to improved living standards.
Name one disadvantage of expansionary fiscal policy:
It can lead to higher government debt.
How can increasing interest rates reduce inflation?
It discourages borrowing and spending, lowering demand.
What might be some negative effects of deflation?
Deflation can slow business and cause job loss.
Which macroeconomic aim is most directly affected by inflation?
Price stability.
How can achieving one macroeconomic aim sometimes conflict with another? (give an example)
Reducing unemployment might increase inflation.
How can fiscal policy help reduce unemployment?
By increasing government spending or cutting taxes to boost demand.
What’s a downside of using monetary policy to fight inflation?
It may slow down economic growth or increase unemployment.
Why is deflation potentially harmful to the economy?
It can lead to lower profits, job losses, and less consumer spending.
How can both fiscal and monetary policy work together during a recession?
By increasing spending and lowering interest rates to boost demand.